The future of the Sugar Industry
The Guyana Sugar Corporation Inc. (GUYSUCO) is a wholly-owned Guyana State enterprise that operates the sugar industry. GUYSUCO, instead of being self-sustaining and contributing to the revenues of the state, has encountered severe decline.
Production in 2016 fell by 18.7 percent and foreign exchange earned by the crop declined 15 percent. This poor performance follows a pattern of inconsistent output in which the average annual output of sugar declined by 14 percent between 2006 and 2015.
GUYSUCO incurred a debt of more than G$82 billion by 2015. The Government, owing to the industry’s ongoing financial crisis, had to provide the required financial relief from the treasury. Within less than two years (since 2015), Government subsidies were estimated to be G$32 billion.
Evolution of the sugar industry
The production of sugar in Guyana first started in Essequibo under the Dutch, and was extended later to Berbice and Demerara. Most plantations were small and each had its own factory to process the cane into sugar. Progressive reductions in the number of plantations, either as a result of closures or amalgamations occurred over the years.
Consequently, by 1829, there were 238 plantations and, by 1890, that number had declined to 138. Closures and consolidations continued into the 20th century, dwindling from 80 plantations in 1900 to 39 in 1922 and to 18 one year after Guyana gained independence from Great Britain.
Sugar cultivation depended on the labour of enslaved Africans, mainly from West Africa for more than 181 years. By the time that, GUYSUCO was established in 1976, the industry was dominated by the labour of East Indians who had started to come to Guyana as indentured workers in 1838. Many settled in the colony with continued attachment to the sugar estates.
The sugar industry was nationalized between 1975 and 1976. At the time of nationalization, there were 11 sugar plantations countrywide. They represented a fraction of the nearly 400 estates that existed in the early 19th century and of the 80 which existed at the beginning of the 20th century. The 11 estates were located at Leonora, Uitvlugt, Wales, Diamond, Enmore, La Bonne Intention, Ogle, Albion, Blairmont, Rose Hall and Skeldon.
The sugar industry remained at the heart of the economy (Hewitt, 2001, p.7) despite the diminished number of estates. Sugar accounted for more than 63 percent of agricultural output and more than 20 percent of gross domestic product (GDP) in 1976 (Jameson & Bonello, 1978).
GUYSUCO was producing 337,776 tonnes of sugar and had a workforce of 28,406 persons at that time. It was the largest employer and a major contributor to foreign exchange. GUYSUCO was producing 246, 898 tonnes of sugar with a labour force of 28,081 in 1992.
The decrease in the number of estates over time is a reflection of the challenges that producing sugar in Guyana entailed.
The Government of Guyana, as the sole investor, owns the sugar industry. Government is expected to demonstrate prudent management of the public resources under its control.
GUYSUCO has faced many challenges over the years but was able to maintain average sugar output of 328,000 tonnes until 1992. GUYSUCO produced an annual average of 2,966,591 tonnes of cane and 264,983 tonnes of sugar in the decade from 1996 to 2005,.
Annual average cane output was 2,548,294 tonnes, while sugar output reached 208,718 tonnes in the subsequent decade of 2006 to 2015. The change in the averages between the two time periods represented a 14 percent decline in cane output and a 21 percent decline in sugar output.
Factory recoveries are reflected in the amount of cane that had to be used to generate a tonne of sugar. Factory recoveries, like cane yields, deteriorated during the review periods. From 1996 to 2005, 11.2 tonnes of cane were needed to produce one tonne of sugar. During the period 2006 to 2015, 12.30 tonnes of cane were needed. In other words, 10 percent more cane was required to produce one tonne of sugar.
GUYSUCO began to display chronic problems, including migration of skilled and experienced managers, exhaustion of its cash reserves, deteriorating field infrastructure and factories and an unstable and adversarial industrial relations climate.
The sugar industry’s contribution to GDP changed between 2006 and 2015. The industry has not been able to keep pace with the changes that have occurred in the economy since 2006.
GUYSUCO incurred total losses of G$40 billion with sales of G$230 billion from 2008 to 2015. By 2015, the management of the company had accumulated a mere G$11 billion in internal equity and had decreased working capital by G$25 billion. It spent 8 cents of every G$1 of sales to build its long-term investment base while generating only 5 cents of internal equity to do so.
GUYSUCO was forced to finance its long-term investment by borrowing money and by relying on subsidies through the national treasury even though all the internal equity was being put back in the business.
The sugar industry now lags behind mining, construction and the rice industry in its contribution to the national economy. Other industries, such as the wholesale and distribution trade, transportation and storage and information and communication technology, also contribute more than the sugar industry to the output of the country. The contribution of the industry is no longer as distinguishable as it was before. Sugar, as a result now finds itself competing with other agricultural crops and forestry in its contribution to the economy.
GUYSUCO is the country’s single largest employer. It has been so for the entire history of independent Guyana. However, there has been a sharp decline in the number of workers employed by the industry over the decade 2006 to 2015. Low labour turnout has resulted in the industry’s suffering significant productivity losses.
Employment costs accounted for 48 percent of total costs from 2010 to 2015, thereby absorbing 73 percent of the revenue earned by GUYSUCO during that period. The dire revenue situation coincided with the loss of preferential markets and prices that the company enjoyed from 1976 to 2009.
GUYSUCO had to sell its sugar at world market prices after 2009 and those prices were lower than its cost of production. This meant that, unless the corporation was able to reduce both factory and field costs, it would remain uncompetitive.
The sugar industry operated in a largely protected market from 1959 to 2009. First, Guyana was among nine countries that benefitted from the Commonwealth Sugar Agreement (CSA). Second, along with other African, Caribbean and Pacific (ACP) states, it benefitted subsequently from the Sugar Protocol under the ACP-EU preferential system. It also had access to the Canadian and US markets at preferential rates. The bulk of Guyana’s sugar was exported to the United Kingdom, which was part of the European Union (EU).
Preferential sales to the EU market accounted for 50 percent of the company’s sugar output and 70 percent of its revenues. In November 2005, the European Agriculture Council (EAC) decided to reduce the guaranteed price for sugar by 36 percent over a four year period that began in 2006.
The EU was forced to withdraw the preferential treatment as a consequence of global pressures to liberalise its trade. In addition, some EU countries produce beet sugar and were competing for greater market share in Europe. The result was that Guyana had to sell its sugar on the world market after 2009. A decision to undertake the Skeldon Sugar Modernisation Project (SSMP) was made and after expenditures of over G$47 billion, that project has failed.
The sugar industry is in crisis. The management of GUYSUCO estimated that the Government of Guyana would have to provide annual subsidies averaging G$17 billion over the next four years to keep the estates open and operating.
The government will be hard pressed to justify such expenditure since the opportunity cost of keeping GUYSUCO as a going concern in its present state is too high. Recognising this untenable situation, the Government decided to install an Interim Management Team to manage GUYSUCO in June, 2015. A new Board of Directors was installed in July 2015 thus providing GUYSUCO with an opportunity to make an objective assessment of its condition and to decide on the way forward under fresh management.
GUYSUCO’s situation requires emergency action. In 2015, the corporation was aware that it could obtain G$5.1 billion from the sale of the Skeldon co-generation plant and a portion of land under its control. These revenues were used to meet current operating costs and a small amount of capital expenditure.
GUYSUCO also needed an urgent injection of G$12 billion to reap the crop that was in season and meet short-term financial obligations to workers and creditors. Failure to act would have had disastrous consequences not only for the sugar industry but the entire economy since in excess of 16,000 workers and about 48,000 dependents would have been adversely affected immediately.
GUYSUCO’s Interim Management Team made a request for financial help and the industry was given a subsidy. Recognising the near bankrupt position of GUYSUCO, the Government appointed a Commission of Inquiry (COI) to examine the situation in the sugar industry and to make recommendations about its future.
Future if the sugar industry
The Government of Guyana is cognizant of the invaluable contribution of the sugar industry over the years. It will not allow GUYSUCO to die from preventable causes. The Government, however, cannot let GUYSUCO continue to utilize a business model that is based on waste, inefficiency and hopelessness, ultimately leading to its undoing. Neither option is a formula for improving the income and wealth of sugar workers while seeking to provide the good life for current and future generations.
The Government of Guyana had to decide whether to maintain control of the industry in whole or in part or whether to diversify its operations or sell it to a private investor or investors.
The COI recommended that the Corporation should be privatized within three years. The Commission recommended, also, that a serious evaluation of all diversification options be conducted to avoid total reliance on sugar for GUYSUCO’s revenues. The COI called for an evaluation of the options.
The future of the industry is considered to lie in a smaller sugar sector with reduced losses and cash deficits but coupled with a separate and profitable diversified enterprise which would ensure a viable future. Focus on the poorly-performing estates should shift from sugar to diversification.
The proposed courses of action are to amalgamate Wales Estate with Uitvlugt Estate and reassign its cane to the Uitvlugt factory, since the estate is operating at 50 percent capacity. Sixty (60) percent of its drainage and irrigation infrastructure is in a dilapidated condition. The corporation furthermore seeks to divest itself of the Skeldon Estate. The estates of Albion and Rose Hall are to be amalgamated and the factory at Rose Hall is to be closed.
GUYSUCO would then consist of three estates and three sugar factories. The estates would be Blairmont in the West Bank Berbice, Albion-Rose Hall in East Berbice and the Uitvlugt-Wales estate in West Demerara. The three estates will be complete with factories and will have cane supplied from all five locations.
The process will result in improving the relationship with some cane cutters, estate staff and about 1,710 private cane farmers. These adjustments mean that GUYSUCO would be scaled-down into a more efficient entity that focuses on producing sugar to satisfy the domestic and foreign markets that provide preferential access to our sugar. This entails taking advantage of the opportunity to merge better performing lands to operate factories more efficiently.
GUYSUCO plans, apart from restructuring the estates and factories, to transfer to the state charges for the drainage and irrigation and health services that it provides to the communities, and around the estates.
GUYSUCO also proposes to surrender land for lease to employees for them to engage in agricultural production. The resources that exist under the “Green economy” and “Regional Food Self-Sufficiency” drive would support their efforts.
The Government proposes that sugar production should be contracted to approximately 147,000 tonnes of sugar annually produced from Albion, Blairmont and Uitvlugt Estates, to satisfy the demand in the local markets (25,000 tonnes pa), CARICOM and regional (50,000 – 60,000 tonnes pa) USA (12,500 tonnes pa) and the World Market (50,000) tonnes. Focus would be on producing for direct consumption, value-added sugars and providing electricity to the national grid (co-generation).
It is proposed that Skeldon Estate should be divested. Significant investment has been made in the new Skeldon Factory which, to date, has experienced numerous technical problems. It has failed to achieve its potential thereby failing to generate returns on the investment. The Corporation does not have the resources required to correct the technical problems. It owes in excess of G$29 billion in loans due for the Skeldon Sugar Modernisation Project.
Funds generated from the divestment of Skeldon Estate will go towards reducing the Corporation’s debt and supporting its capital programmes for both sugar and the diversification initiatives.
The Government, pending the results of the divestment initiative, proposes to implement the following plan for GUYSUCO. The key elements of this plan are as follows:
GUYSUCO’s sugar operations will be limited to the Albion-Rose Hall, Blairmont and Uitvlugt-Wales estates with the aim of producing annually 147,000 tons of sugar, with the assurances of markets at economic prices.
Albion and Rose Hall estates cultivation will be amalgamated. This will result in the closure of the Rose Hall factory at the end of 2017. Some lands will be made available for diversification purposes.
The Enmore factory will be closed at the end of 2017 when all cane would be harvested. The East Coast Estates would be earmarked for diversification.
GUYSUCO will retain as many workers needed for all operations on the merged estates/factories.
Employees are to be leased land by GUYSUCO to engage in crops (crop types to be decided by GUYSUCO and the Ministry of Agriculture).
Recovery of drainage and irrigation charges will be made from the Government of Guyana. GUYSUCO from the inception has been assisting with the drainage and irrigation of surrounding communities. This has allowed for approximately 40% of GUYSUCO’s annual drainage and irrigation costs.
GUYSUCO, as part of its corporate social responsibility, operates a number of health-care centers and dispensaries in the Berbice and Demerara regions. The options available to the Corporation are the transferal of such health centers and dispensaries to the Government or the recovery of costs from the Government.
Given the financial and technical evidence presented, it is therefore feasible to amalgamate estates and factories where appropriate for the better utilization of the country’s resources. In this regard, Government proposes to:
on lands to be made available to them.
Consistent with this position, Government proposes to invite expressions of interest for the divestment. A Corporate vehicle will be established to manage this process on a full-time basis.
GUYSUCO proposes pending action on divestment, to proceed with a series of actions intended to reduce the financial burden of the corporation.
GUYSUCO proposes to take account of the similar experience of other countries in proceeding with its actions.
Dec 15, 2017DPI, GUYANA, Friday, December 15, 2017 The Government’s fiscal spending for the year 2018 has been given the green light by the National Assembly. The sums were approved by the National Assembly, this afternoon, after Appropriation Bill 2017, Bill No. 15 of 2017 was put to the House for vote. The...
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